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Important tax changes for 2018

Fri, 01/12/2018 - 10:46

With the draft budget for 2018, President Emmanuel Macron has started the tax reforms that were announced during his campaign. It is currently being submitted to the French parliament and includes important tax changes for companies as well as for private individuals.

Changes for companies

The main tax measure concerns the corporate tax rate. The current rate of 33.33% will be reduced to reach 25% by 2022. In 2018, a 28% rate should be applied for each company with a taxable profit below 500,000€ while the rate remains the same at 33.33% for those above. The rate for small and medium companies is unchanged too (15% for a taxable income up to 38,210€). In 2019, for companies with a taxable profit above 500,000€, the rate should be reduced to 31%. In 2020, the 28% rate should be the new standard rate (for all profits), then 26.5% in 2021 and finally 25% in 2022. Regarding the end of the CICE (a tax credit called Crédit d’Impôt Compétitivité Emploi), which is calculated on salaries until 2.5 times the guaranteed minimum wage, the current rate is 7%. This should be reduced to 6% from 1st January 2018. At the beginning of 2019, this tax reduction will be replaced by a permanent reduction of social charges due by employers.

While the French CSG and CRDS will be increased by 1.7% on 1st January 2018, other social contributions will be reduced.

Changes for private individuals

In order to simplify the capital taxation in France, a ‘flat tax’ (fixed levy called PFU: prélèvement forfaitaire unique) of 30% on certain capital incomes has been created and will be effective for 1st January 2018. It should concern all capital incomes and gains, but taxpayers will have the possibility to opt for the income tax rate instead of the PFU if the rate is more advantageous. In this case, tax deductions should remain the same forshares bought before 1st January 2018. Another important change for 2018 is the end of the Wealth Tax (ISF: Impôt de Solidarité sur la Fortune), which will be replaced by the IFI (Impôt sur la Fortune Immobilière), a wealth tax on real estate only: assets other than real estate will not be taxed as of 2018. The threshold of 1,300,000€, the progressive tax rate and the 30% reduction for the main residence should be maintained.

The residence tax called Taxe d’Habitation should be phased out for 80% of French households by 2020; the tax should be cut by a third each year between 2018 and 2020. This exemption should concern households earning less than 27,000€ a year for single-households, 43,000€ for couples and then increased by 6,000€ for each additional household member (children or dependent persons).